Krasnodar, Russia (29 April, 2020): Magnit PJSC (MOEX and LSE: MGNT; the Company), one of Russia’s leading retailers, announces its 1Q 2020 operating and unaudited financial results.

1Q 2020 key operating and financial highlights:

Total revenue increased by 18.5% y-o-y to RUB 376.0 billion;
Net retail sales reached RUB 364.8 billion representing 17.6% y-o-y growth;
Wholesale revenue increased by 58.9% y-o-y to RUB 11.3 billion driven by improvements of wholesale operations including expanded assortment and increased customer base;
LFL¹ sales growth stood at 7.8% on 3.7% average ticket growth and 4.0% traffic growth, excluding leap year effect in February;
The Company opened 321 stores² on gross basis (145 convenience stores and 176 drogeries). Under the previously announced efficiency improvement campaign, 186 stores (173 convenience stores, 1 supermarket and 12 drogerie stores) were closed, thus bringing the total store base as of March 31, 2020 to 20,860 stores (135 net store additions);
Addition of selling space amounted to 38 thousand sq. m., bringing total selling space to 7,277 thousand sq. m. (8.3% y-o-y growth);
The Company redesigned 214 convenience stores, 77 drogerie stores and 1 supermarket. As of March 31, 2020 the share of refurbished and new stores reached 71% of convenience stores and 53% of drogeries;
Gross Profit stood at RUB 85.2 billion with a margin of 22.7% (down 78 bps y-o-y) driven by a combination of lower trading margin and loyalty card roll-out partially offset by improved commercial terms, lower shrinkage and transportation costs, positive impact of product mix, increased share of high-margin drogerie format and first promo margin gains;
Reported EBITDA was RUB 22.7 billion with 6.0% margin having improved by 14 bps y-o-y and 63 bps q-o-q driven by gross margin dynamics and lower SG&A expenses;
Net income increased by 30.8% y-o-y and stood at RUB 4.2 billion. Net income margin increased by 10 bps y-o-y to 1.1%.

Jan Dunning, President and CEO of Magnit, commented:

"Health and safety of our customers and employees and sustainable operations of our stores are our key priorities during this challenging environment. Serving up to 16 million of customers every day we are responsible for continuous supply, availability of products across all categories and customer-centric services. All our 300,000 employees do everything they can day and night to meet these challenges. We make every effort to ensure safety of our customers and employees and work closely with suppliers and public authorities to secure regular supply of affordable products.

Being a socially responsible company, we think it is important to support our customers and provide them with affordable offering. The Company has launched a support program for socially vulnerable citizens including food aid and additional discounts in stores. We have set zero mark up on certain socially important products. Under the program to support medical workers, the Company has issued special cards with higher level of bonuses and will provide food packages. We also support personnel of other organizations who had to suspend their operations by engaging them in our stores and distribution centers.

Resilient and efficient operations in challenging times is our double responsibility. First quarter results demonstrate our ability to cope well with the extraordinary situation. We continue implementing our strategic initiatives aimed at quality improvements of our customer value proposition and optimization of the key business processes. Positive customer response is reflected not only in the results of the reported quarter as a whole but in each month since the start of the year — for the first time in more than five years we see positive LFL growth across all formats with total sales growth outpacing selling space growth already in January and February on the back of decelerating promo activity.

The ability to make quick and efficient decisions in adjusting commercial and logistics functions, key operational processes and services to changing demand definitely plays crucial role in the environment of restrictive measures and macroeconomic uncertainty. Personalization and clusterization of the customer value proposition supported by our evolving loyalty program and recently launched digital transformation among other initiatives will further strengthen our market position."

Key events in 1Q and after the reported period:

Magnit paid dividends for 9M 2019 in the total amount of c. RUB 15 billion or RUB 147.19 per one ordinary share;
The Board of Directors recommended to pay dividends for FY 2019 in the amount of c. RUB 16 billion or RUB 157 per one ordinary share — subject to shareholders’ approval, this may bring total dividend payment to RUB 31 billion (RUB 304 per ordinary share) in line with the previous year;
Exchange-traded bonds in a value of RUB 15 billion with an interest rate of 6.2% per annum and 3-year duration were placed on MoEx on March 5, 2020. Analytical Credit Rating Agency ACRA assigned credit rating AA (RU) to this bond issue;
It was decided that exchange-traded bonds in a value of RUB 10 billion with an interest rate of 6.7% per annum and 3-year duration will be placed on MoEx from April 29, 2020;
Magnit launched digital transformation by signing a number of agreements with SAP on integration of IT solutions;
Since the start of the pilot in March 2019 Magnit issued about 45 million loyalty cards with the number of active users exceeding 31 million. Company-wide the share of tickets with the use of the loyalty card was 47% with penetration in sales reaching 64%³;
The Board elected Maxim Shchegolev, previously appointed as the Director for Retail Chain Development, Real Estate, and Maintenance, to the Management Board;

COVID-19 Implications

Safety for customers and employees

The Company undertakes additional measures to protect customers and employees in the pandemic environment. These included intensified cleaning of stores and distribution centres, installation of more than 7,000 screen protectors at the cash desks, purchases of sanitizers, thermometers, thermal imagers, around 1.4 million respirators, more than 2 million gloves and 20.1 million medical masks for 224 thousand of in-store and supply chain employees. Special marking has been made in all the stores to ensure customers keep social distance when shopping.

In the drogerie format cosmetics testers were withdrawn and sales assistants instructed to keep 1.5m distance while consulting customers. DC staff were allocated to separate zones. Employees are not allowed to migrate from one store to another and supervisors can only visit one store per day according to the preliminary agreed schedule. Mobile teams have been formed across all regions and formats as well as logistics network to replace their colleagues in the event of quarantine.

The Company has updated office hygiene program and cleaning procedures, modified travel policies, arranged flexible working plans and introduced daily filling of mandatory health check questionnaire by employees before entering the workplace.

Personnel at the Company’s headquarters in Krasnodar and regional offices across the country started working remotely from mid-March. Up to 90% of the Head Office employees and about 70% of regional offices currently work in the remote mode.

Social Responsibility

The Company made a decision to issue approximately 150,000 loyalty cards for medical officers with an elevated bonus of 20% of the purchase amount (vs regular 0.5-2%). A discount of 10% on the entire assortment in convenience stores and supermarkets provided to pensioners as well as volunteers and social workers making purchases for elderly people who have to follow self-isolation regime. Magnit and X5 Retail Group signed joint agreement setting zero mark-up for selected list of socially important articles in the price-entry segment to support customers during coronavirus epidemic. Magnit has signed an agreement with more than 20 companies representing fast-food chains, restaurants and non-food retailers for a temporary hiring of their employees to work at Magnit stores and distribution centers in 20 Russian regions to satisfy increasing customer demand. The Company also launched special #MagnitCare program to support socially vulnerable groups of people providing set of basic food and non-food articles for free. The support so far has covered over 140,000 targeted recipients in 8 regions.

Increased customer demand

Starting from the second decade of March the Company has increased supply from its distribution centers to the stores by 20%, while for certain product categories in high demand supply has been increased by 30%. This required the whole car fleet of more than 5,400 trucks to be fully utilized in operations. Moreover, the Company concluded mid-term contracts with transport companies with guaranteed volumes to ensure transport availability to be able to serve hikes in supplies. Distribution centers in the Moscow region, which serve around 2,500 stores, arranged additional deliveries during nighttime. Management team reviewed delivery schemes and flow types at DCs to minimize lead times and arranged green corridor custom agreement for all imported goods.

In order to serve extraordinary demand for socially important items the Company had to make adjustments in the auto ordering system. For items under risk of out-of-stock the Company increased stock levels in advance. Faster shelf replenishment required simplification of in-store operational standards and increased shelf space for socially important categories. With all described measures, Magnit managed to maintain stock availability metrics during the reported period at the industry average level of 90%.

Store network

Following decision of the federal and local governments Magnit’s stand-alone stores across all formats, including food, drogerie and pharma, continued operating. Out of 180 supermarkets located in the shopping malls only 3 stores temporarily discontinued operations due to closure of the malls, while the remaining continued operating through isolated entrance. In addition, 15 drogerie stores have been temporarily closed due specific regional restrictions. The Company does not expect visible impact on sales from interim closure of the abovementioned stores.

Expansion and redesign program

In the environment of lockdown and other country-wide and regional restrictions the Company is reviewing its store opening and redesign program across all formats to continue selective expansion with greater focus on return requirements.Krasnodar, Russia (29 April, 2020): Magnit PJSC (MOEX and LSE: MGNT; the Company), one of Russia’s leading retailers, announces its 1Q 2020 operating and unaudited financial results.

¹ LFL calculation base includes stores, which have been operating for 12 months since its first day of sales. LFL sales growth and average ticket growth are calculated based on sales turnover including VAT. No VAT effect reflected in y-o-y comparison.

² The number of stores does not include pharmacies.

³ As of March 31, 2020

Magnit reports 18.5% sales growth and 8% LFL sales growth in 1Q 2020